SMSF Investment Strategy: Do Your Asset Allocations Align With The Financial Statements?

For self-managed super funds (SMSFs), the investment strategy is more than a compliance document. It is the written plan that explains how the trustees intend to invest, hold and realise assets to meet the fund’s objectives and the retirement goals of its members.

When preparing the SMSF’s annual financial statements, one important step is checking whether the fund’s actual asset allocation aligns with the investment strategy on file. If the financial statements show an asset mix that sits outside the strategy’s stated ranges, the strategy should be reviewed and, where appropriate, updated before the fund is sent to audit.

Why the Investment Strategy Matters

Superannuation law requires SMSF trustees to prepare, implement and regularly review an investment strategy. The strategy should be in writing, tailored to the fund’s circumstances and explain why the chosen investments are appropriate for the members’ needs.

A good investment strategy should not simply repeat the legislation or rely on a generic template. It should reflect the fund’s objectives, member circumstances, risk appetite, expected returns, diversification, liquidity needs, ability to pay liabilities and whether insurance for members has been considered.

Asset Allocations Need to Match the Financial Statements

Most SMSF investment strategies include target asset allocation ranges. These ranges might cover categories such as Australian shares, international shares, cash, fixed interest, property, managed funds, cryptocurrency or other investments.

When the annual accounts are prepared, the asset allocation shown in the financial statements should be compared against the investment strategy. If the fund’s actual investments fall outside the documented ranges, this can indicate that the strategy is no longer being followed or is no longer appropriate for the fund’s current position.

For example, if the strategy allows 0% to 40% in property but the financial statements show that property represents 75% of the fund’s assets, the trustee minutes and investment strategy should be reviewed before the file is sent to audit. The issue may not be that the investment itself is prohibited, but that the documented strategy does not support the fund’s actual investment position.

What to Do Before Sending the Fund to Audit

Before the SMSF is sent to audit, the accountant, administrator or trustee should check that the investment strategy is current and consistent with the financial statements. This should be part of the annual review process, not something left until the auditor raises a query.

Practical steps include:

• Compare the asset allocation in the financial statements with the ranges listed in the investment strategy.
• Identify any asset classes that fall outside the approved ranges.
• Consider whether the current strategy still reflects the fund’s investment objectives and member circumstances.
• Review whether the strategy adequately addresses risk, return, diversification, liquidity and insurance.
• Prepare trustee minutes documenting the review and the reasons for any changes.
• Update the investment strategy before audit if the current document no longer supports the fund’s actual investments.

Updating the Strategy Does Not Mean Backdating Decisions

If an update is required, it should be done properly. The trustees should review the current circumstances of the fund and document their decision at the time the review is undertaken. The strategy should not be treated as a document that is simply adjusted after the fact without proper trustee consideration.

The updated strategy should explain why the current asset allocation is appropriate. For example, if the fund is heavily invested in property, the trustees should consider and document how they will manage concentration risk, liquidity, expenses, pension payments and any loan repayments.

ATO Expectations and Audit Implications

The Australian Taxation Office expects SMSF trustees to have an investment strategy that is tailored to the fund and reviewed regularly. The strategy should explain how the fund’s investments support the members’ retirement objectives and should be implemented in practice.

If the investment strategy is outdated, generic, not reviewed or inconsistent with the fund’s actual investments, the auditor may need to raise the issue with the trustees.

Keeping the strategy aligned with the financial statements helps demonstrate that the trustees have actively considered the fund’s investments and are managing the SMSF in line with the ATO’s guidance.

Why the Annual Review Is Important

An SMSF’s investments can change significantly over a year. Market movements, property revaluations, pension payments, contributions, rollovers, acquisitions and disposals can all affect the fund’s asset allocation. Even if trustees have not intentionally changed their investment approach, the financial statements may show that the fund has moved outside its documented strategy.

This is why the investment strategy should be reviewed annually when the accounts are prepared. The review should confirm whether the existing strategy remains appropriate or whether changes are required to reflect the fund’s current assets and member circumstances.

Final Thoughts

An SMSF investment strategy should be a live document that reflects the fund’s actual investment position and the members’ retirement objectives. Before sending an SMSF to audit, trustees and advisers should check that the asset allocations in the financial statements align with the ranges and objectives in the investment strategy.

If the asset allocations do not align, the strategy should be reviewed and updated before audit. This simple step can help reduce audit queries, support compliance with ATO guidelines and show that the trustees are actively managing the fund in the best financial interests of the members.